2011 Annual Report

VIII. BRE Bank Group’s Corporates & Financial Markets Segment

The Corporates and Financial Markets Segment of BRE Bank offers its corporate banking and institutional customers a broad range of products and services, including current accounts, internet banking based cash management services, term deposits, foreign exchange transactions, short-term financing and investment loans, cross-border credit, project finance and trade finance solutions, structured and mezzanine finance services, and investment banking services and products. The Bank distributes its products and services through a fully dedicated network of corporate branches and offices, as well as through its innovative corporate banking internet platform – iBRE.

VIII.1. Corporates and Institutions (BRE Bank)

Market conditions in the corporate sector improved compared to 2010 although the level of activity was lower than anticipated at the beginning of the year 2011. The growing utilisation of production capacity did not translate into substantially increased investment activity, as corporates continued to rely extensively on their own funds for the financing of their investments. Nonetheless, acceleration in corporate lending was registered towards the end of the year particularly in the segment of the largest enterprises.

In the context of the prevailing conditions, BRE Bank’s efforts in the corporate banking segment focused on maximising the existing market potential. With continued focus on identifying new high potential clients, BRE Bank was able to increase the number of corporate clients to a record level of 13,977 entities. In 2011, gross client acquisition increased by 5.0%, with nearly 19% share of international clients among the newly acquired customers, as a result of efficient cooperation with Commerzbank Group.

Furthermore, the Bank’s market shares in key products were maintained or expanded. In particular, the corporate deposits market share increased by 1.3 p.p. to 9.9 % in 2011 from 8.6% in 2010 while the corporate loans market share expanded 0.6 p.p. to 6.8% in 2011 up from 6.2% in 2010.

The growth of the segment’s net income in 2011 continued to be supported by transactional banking revenues, an area of the Bank’s strategic focus due to its high growth potential and significant client interest. In particular, the Bank won several important tenders in the transactional banking area including the implementation of the Silesian Public Transportation Services Card and a City Card designed jointly with the city of Cracow.

Finally, a 72% rise in project finance loans is a notable example of BRE Bank’s product strength and ability to service particular corporate client needs in a changing market environment.

VIII.1.1. Increase of Corporate Client Base

During 2011, BRE Bank acquired 2,343 new corporate clients, of which 63.4% were K3 clients and 30.7% were K2 clients. The total number of clients reached 13,977 companies at the end of December 2011, up by 706 YoY.

K1 represents the segment of the largest corporations with annual sales of over PLN 500 million, K2 is the segment of medium sized corporations with annual sales between PLN 30  and 500 million and K3 is the segment of small and medium companies with annual sales between PLN 3 and 30 million.

VIII.1.2. Product offer

Loans and Deposits

The volume of corporate loans and deposits is presented in detail in chapter XI.2.1.

The market for loans to enterprises grew by 19.4% in 2011. The market share of BRE Bank’s lending to enterprises grew to 6.8% at the end of December 2011 versus 6.2% a year earlier.

The corporate deposits market increased by 12.5% in 2011. The share of BRE Bank in corporate deposits market increased to 9.9% at the end of December 2011 compared to 8.6% at the end of 2010.

BRE Bank, in line with its strategy, continued to intensify its activity in servicing the public sector. The Bank’s market share in loans granted to local governments at the end of December 2011 reached 6.7% compared to 4.1% at the end of 2010.

Structured Finance, Project Finance and Syndicated Loans

This area of the Bank’s Corporate Banking business includes M&A finance, project finance, syndicated loans and mezzanine finance. Throughout 2011, the Bank remained a major player on the market for syndicated loans and participated in 44 syndicated loan transactions. BRE Bank newly generated and refinanced exposures in respect of syndicated loans in the amount PLN 3,975 million. The Bank also finalized 20 bilateral loans totalling PLN 743 million. The total value of loans and guarantees granted by the Bank during 2011 amounted to PLN 4,848 million.

Transactional Banking  

BRE Bank Group’s comprehensive cash management offer, supporting the Group’s long-term relationships with corporate clients, resulted in a further increase of payment identification transactions and of the number of clients using advanced cash management solutions.

In 2011, the number of Direct Debit transactions reached 3,532 thousand, which represents an annual increase of 24.2%. The number of Trade Payment Identification transactions has also been growing dynamically. The number of transactions executed in 2011 exceeded 10 million constituting an increase of 14.5% compared to a year earlier. In 2011, the number of clients using the most sophisticated solutions involving cash pooling on bank accounts rose by 9.5% compared to December 2010. At the end of 2011, there were 645 clients using Cash Pooling and Shared Balance offers.

The following figures illustrate the development of transactional banking in 2011:

  • The number of domestic transfers made by corporate clients in 2011 increased by 28.0% YoY
  • The number of foreign transfers increased by 23.0% compared to 2010 with the highest rise observed in the case of SEPA transfers which surged by 42.0% in the discussed period
  • The volume of cash processing services for corporate clients increased by 27.0% YoY  
  • The total number of corporate cards issued grew by more than 173.0% YoY; the most dynamic growth, of 255.0%, was observed in prepaid cards
  • Over 100 thousand cards were issued as Electronic Money Instrument
  • The number of users of the iBRE system rose by 13.0%. Currently, there are 58,147 active authorisations to utilise the iBRE platform.

Development of the corporate banking offer

The Transactional Banking area of BRE Bank continued its efforts to expand the product offer, to streamline processes and to implement solutions aimed at increasing the satisfaction of the Bank's corporate clients. The area’s major projects in 2011 included:

  • Electronic Money Instruments offer. BRE Bank, in cooperation with MasterCard launched an issue of cards in the form of electronic money becoming the first institution to offer this solution to its corporate clients. BRE Bank offers two cards: MasterCard eMoney PayPass, a reloadable card suitable for contactless payments, and MasterCard eMoney, an electronic card substitute for cash that cannot be reloaded once utilised.
  • Use of Electronic Money Instruments in clients’ projects, e.g. the Sports Fan Card issued for football clubs (Korona Kielce, Pogoń Szczecin, Wisła Płock), the Event Card used at major cultural events organised by Alterart (Coke Live Festival, Selector Festival, Heineken Open’er Festival) or the City Card designed jointly with the city of Cracow.  
  • Completed implementation of all products under the CashBREaker project. The two-year project the Central Cash Management System in BRE Bank Group was completed. CashBREaker is a central cash management system used by MultiBank outlets, corporate branches of BRE Bank and sorting offices cooperating with the Group. This solution allowed for reducing costs and optimizing cash processes in the entire Bank.
  • Modification of the Integrated Bank Account Agreement (ZURB) documentation. To maximise clients' convenience, the Bank introduced modifications aimed at streamlining the process of signing new agreements, and made necessary changes in the already signed agreements at the request of clients. The modifications are expected to improve the effectiveness of product documentation management and to make the offer more flexible. The modified application for opening ZURB sets a new market standard in terms of transparency, conciseness and compliance with the applicable regulations and good practices.
  • iBRE platform functionality enhancement. The platform was enhanced with several new modules including: Custody (presentation, management and trading in securities), Liquidity (collective information on accounts and orders, liquidity analysis, presentation of shared balance or cash pooling structures and limits), Business Information (access to market information downloaded from various sources). In addition, an option for active information exchange with the Bank was added to the iBRE Client Area.  
  • Successful tender for the Silesian Public Transportation Services Card. In November 2011, the process of selecting the main provider of the Silesian Public Transportation Services Card was finalised. Asseco Poland and BRE Bank consortium won the tender for supply, implementation and maintenance of the system servicing the Silesian Public Transportation Services Card. The project involves the introduction of a system of electronic payments for services provided by public institutions in the Upper Silesia region through the use of electronic contactless cards. Apart from the function of electronic money, the card will serve as citizens’ ID, a carrier of electronic signature as well as a travel card. In addition, an electronic platform integrating online public services in the region will be launched.  
  • Continuation of Cross Border Business Enhancement Project. The aim of the “Cross Border” project is to facilitate the cross border co-operation within Commerzbank Group in services provided to German-speaking international clients that conduct their business activities in more than one country. The project, when completed, should result in significant harmonization of services and products offered within the Commerzbank Group. The harmonization involves, among others, a revised organization of servicing of international clients, utilization of dedicated CRM infrastructure, close co-operation of Commerzbank’s and BRE Bank’s product sales forces and streamlining of cross boarder credit processes. As a result, a number of  German-speaking clients operating in Poland have already been acquired and serviced through the joint efforts of Commerzbank Group and BRE Bank Group.  

VIII.1.3. Corporate Network Enhancement and “Branch of the Future” Project

As a result of a detailed analysis of the territorial layout of small and medium enterprises in Poland additional new locations were identified and marked for the future roll-out of the Bank’s corporate banking presence.

In 2011, 5 new branches were opened: in Nowy Sącz and Toruń, Wałbrzych, Branch IV in Warsaw and Koszalin. The unit in Koszalin is a pilot model of the so called “Branch of the Future” concept, combining corporate and retail banking offering (MultiBank) with the aim of achieving additional cost and operational synergies. The Bank expects cost synergies mainly in the cash service area in which the needs of corporate and retail clients are similar. Additionally, MultiBank clients will have the option to use night depositories which are not available in traditional retail branches. On the other hand, corporate clients will have the possibility to use cash deposit machines which are usually not available in other corporate branches. Apart from cost synergies, the Bank expects an increase in the effectiveness of cross selling, especially among corporate clients to whom retail products will be offered. At the end of 2011, the Group operated 29 branches and 19 corporate bureaus. 

VIII.2. Subsidiaries within the Corporates & Institutions area

BRE Faktoring S.A. (former Polfactor S.A.)

On November 16, 2011, the Annual General Meeting of Polfactor S.A. decided to change the name of the company to BRE Faktoring S.A. This change was a natural consequence of the purchase of the remaining 50% of company shares by BRE Bank in July 2011.

In 2011, the factoring market in Poland continued to expand (+19.3%, according to the Polish Factors Association). BRE Faktoring reported a turnover of PLN 5.9 billion (+33.0% YoY) and strengthened its fifth position among companies associated in the Polish Factors Association with a market share of 8.8% mainly driven by strong growth in export factoring. The company’s dynamic increase in sales translated into higher net interest and net fee and commission income. As a result, the pre-tax profit of BRE Faktoring reached PLN 18.7 million (+56.3% YoY).

Transfinance a.s.

In 2011, the factoring market in the Czech Republic grew by over 14.0%. The annual turnover of Transfinance reached PLN 3.1 billion and was 26.1% higher compared to 2010. Considerable growth in export and import factoring was combined with a marginal decrease in domestic factoring. As a result, the pre-tax profit for 2011 reached PLN 4.3 million, compared to a pre-tax loss of PLN 10.1 million generated a year earlier. The improvement was predominantly driven by higher income and lower impairment charges on factoring receivables.

BRE Leasing Sp. z o.o.

The value of leasing agreements concluded by BRE Leasing in 2011 amounted to PLN 2,551 million, increasing by 17.7% compared to a year earlier. The growth was predominantly driven by a 20.6% rise in real estate leasing. Consequently, the pre-tax profit of BRE Leasing in 2011 reached PLN 49.1 million and was higher by 11.4% compared to 2010.

The growth of the pre-tax profit was mainly driven by lower overhead costs which declined by 11.3% YoY. Net interest income was impacted by two effects: a rise in sales which brought an increase in the portfolio of receivables, and lower margins on newly signed leasing agreements compared to the expiring ones.

BRE Holding Sp. z o.o.

BRE Holding sp. z o.o. was established in November 2007 with BRE Bank as its sole shareholder. The assets of BRE Holding comprise shares in BRE Bank Hipoteczny SA, BRE Faktoring SA and BRE Leasing Sp. z o.o., valued at PLN 460 million in total. In 2011, the main source of revenues generated by BRE Holding were dividends totalling PLN 14.7 million.

BRE GOLD Fundusz Inwestycyjny Zamknięty Aktywów Niepublicznych (BRE Gold FIZAN)

All the investment certificates issued by the fund have been acquired by the Bank. The fund’s assets include PZU shares and dividends. The value of the investment certificates stood at PLN 235.2 million as of December 31, 2011. At the end of 2011, BRE Gold FIZ’s investment in PZU comprised 471,170 shares. Pre-tax profit amounted to PLN 14.8 million and was generated predominantly through dividends.

Garbary Sp. z o.o.

The company is a part of the Bank’s portfolio since May 2004, following a restructuring of the Bank’s investment in the debt securities of Tele-Tech Investment Sp. z o.o. Garbary’s only asset is a piece of land with buildings at 101/111 Garbary St., Poznań, including a meat plant facility (currently not in use) subject to protection as a historical monument. 

VIII.3. Trading and Investment Activity area

The Trading and Investments area of the Bank comprises:

  • Management of the Bank's liquidity as well as its assets and liabilities (including deposit and advance portfolio interest risk management). In order to manage the Bank's liquidity a number of transactions are executed, including money market transactions, currency swaps, interest rate derivatives, treasury bond, treasury bill and NBP bill purchase transactions, as well as entering into repo transactions. These operations are performed by the Treasury Department
  • Management of the Bank's currency risk, trading in FX interbank instruments (spot transactions and derivatives), trading in interest rate instruments (treasury bonds and treasury bills, interest rate derivatives), commodity derivatives, share and stock exchange index derivatives
  • Organising the issuance of debt securities for corporate banking clients and banks, as well as trading of these securities  
  • Direct sale of financial markets products to corporate banking clients and non-banking financial institutions (such as e.g. insurance companies, pension and investment funds and companies managing assets) and selected private banking clients.

In 2011, the Bank maintained its leading position on the market for trading treasury securities and interest rate derivatives. At the end of December the Bank’s market share in the T-bills and bonds segment increased to 7.4% compared to 5.7% at the end of 2010. The Bank’s market share in IRS/FRA transactions reached 18.6%, compared to 19.0% at the end of 2010. Furthermore, the Bank reached a market share of 16.9% in arranging short term debt securities with total issuance of PLN 3.75 billion (data based on Fitch Polska).

With a market share of 19.0%, BRE Bank became the second largest player on the rapidly growing market for arranging corporate bonds. BRE Bank organised a number of important new issues, including those of Echo-Investment, Arctic Paper, Katowicki Holding Węglowy, Magellan and Siódemka SA. At the end of December 2011, the value of corporate bonds placed by BRE Bank reached nearly PLN 4.6 billion compared to PLN 3.2 billion at the end of 2010.

The Group’s market share as arranger of bank debt securities (excluding the bonds for road investments issued by BGK) reached 22.0% compared to 22.5% at the end of 2010 while the value of securities placed stood at PLN 3.4 billion compared to PLN 2.4 billion at the end of 2010. Covered bonds issuance organised by BRE Bank on behalf of BRE Bank Hipoteczny totalled PLN 800 million. Other large transactions included the issue of BGK bonds worth PLN 340 million and the issue of subordinated bonds for Getin Bank totalling PLN 400 million.

Enhancement of Investment Banking Offer for Corporate Clients

During 2011, a number of specific initiatives were started and carried out in order to strengthen the investment banking product offer for the corporate clients of BRE Bank Group. They included among others:  

  • The increase of cross selling of Treasury products to existing and new corporate clients through more active marketing efforts  
  • The upgrade of iBRE FX electronic platform enabling enhanced service and more efficient product sales to corporate clients
  • The improvement of derivative product sales processes developed jointly by Corporate and Risk areas.

Currently, iBRE FX allows clients to conclude FX transactions quickly and effectively, and to negotiate attractive exchange rates. The system offers rates depending on market prices, transaction volumes and the company's profile of operations, and automatically settles all the transactions on the clients' accounts. This solution helps to optimise the settlement costs related to trade transactions in which foreign exchange rates play an important role.

Thanks to a further enhancement of the iBRE FX platform which allows clients to conduct foreign currency transactions on the Internet, the number of its active users rose from about 250 in January to more than 3.3 thousand at the end of December 2011. The share of foreign currency transactions conducted via the platform in the total volume of FX transactions conducted by the Bank's corporate clients quadrupled within the year and amounted to c. 30% at the end of December 2011.

VIII.3.1. Financial Institutions

Relations with Financial Institutions are managed by the Trading & Investments business line. The activities include funding from other banks and placements with other banks.

As of December 31, 2011, the Bank had 28 active loans amounting to the equivalent of PLN 26,976 million, of which PLN 20,719 million were drawn. The total amount of loans raised increased by PLN 358.5 million compared to the end of 2010.

BRE Bank’s total exposure under loans granted to other banks amounted to the equivalent of PLN 1,511.4 million as of December 31, 2011. The Bank’s portfolio comprised 41 active short- and long-term loans granted to other banks.

The number of correspondent banks of BRE Bank stood at 1,637 at the end of 2011. New accounts were opened in CNY (Chinese yuan) and RON (Romanian leu) to meet the needs of corporate clients for settling commercial transactions with these two countries.

Finally, the Bank maintained its leading position in export financing (mid-term loans insured with the Export Credit Insurance Corporation - KUKE) and continued to foster trade finance relations with correspondent banks.

VIII.3.2. BRE Bank’s Custody Services

BRE Bank’s custody clients comprise local and foreign financial institutions, banks which offer custodian and investment services, pension funds and investment funds, insurance companies, asset management institutions, and non-financial institutions.

The Bank provides services including settlement of transactions in securities registered in local and foreign markets, safe-keeping of clients’ assets, maintenance of securities accounts and registers of securities in non-public trading, maintenance of asset registers of pension funds and investment funds, monitoring of the valuation of their assets and the processing of corporate actions.

The Bank’s custody services expanded in 2011. The Bank continued to acquire new clients, predominantly investment funds.

VIII.4. Trading & Investment Activity subsidiaries

BRE Bank Hipoteczny SA (BBH)

BRE Bank Hipoteczny SA is a specialised mortgage bank offering loans for commercial and residential developers as well as loans for local governments. The company issues mortgage and public bonds to finance its lending operations.

In 2011, BBH's loan portfolio increased by 10.4% to reach PLN 4.2 billion. At the end 2011, the nominal value of covered bonds issued by BBH amounted to PLN 1.9 billion.

In 2011, BBH reported a pre-tax profit of PLN 27.6 million (-27% YoY). The decrease in pre-tax profit was driven by higher impairment charges (+PLN 9.4 million).

Dom Inwestycyjny BRE Banku SA (DI BRE)

DI BRE's institutional trading desk provides services to major Polish institutional investors (pension funds, mutual funds and asset management firms) as well as selected international funds, while its Internet platform serves a significant number of retail clients active on the WSE.

In 2011, DI BRE opened 11 thousand new brokerage accounts. As a consequence, the number of accounts reached 294.3 thousand.

DI BRE was a joint book runner on the initial public offering of Kruk, a company specializing in the collection of overdue receivables, for a total amount of PLN 369 million, it was the co-manager of the JSW S.A. initial public offering of PLN 5.4 billion and conducted the initial public offering of VOXEL S.A. for a total amount of PLN 19 million. DI BRE's share in the turnover on the equity market reached 5.3%, ensuring the 7th position on the market. The ranked 2nd in the forward transactions market with a market share of 14.1% and 8th in options trading with a 5.7% market share. In 2011, DI BRE generated a pre-tax profit of PLN 33.2 million compared to PLN 37.1 million a year earlier.

BRE Finance France SA

BRE Finance France is a special purpose vehicle (SPV) set up for the purpose of acquiring funds for BRE Bank on the international capital markets through the issuance of Eurobonds. In 2011, the SPV was not active.